Interior secretary cancels royalty-in-kind program

By Juliana Gruenwald

September 16, 2009

Interior Secretary Ken Salazar on Wednesday announced he is terminating a controversial program that allows industry to provide the federal government with oil and gas instead of cash for the use of public lands.

Salazar made the comments during a House Natural Resources Committee hearing on legislation that would revamp federal programs governing oil and gas leasing and the federal royalty system.

"It is time to end the royalty-in-kind program," he said. In his written testimony, Salazar said it would be a "phased-in" termination of the program so it could be transformed into a "more transparent and accountable royalty collection program."

The program, run by Interior's Minerals Management Service, came under fire last year following the release of a series of Interior Department inspector general reports that found ethical lapses by MMS employees, including reports that agency employees engaged in improper social relationships with industry officials and received unauthorized gifts.

Salazar said in addition to ending the royalty-in-kind program his department also wants to work with Congress on "royalty simplification."

In written testimony, the GAO's Frank Rusco said the royalty-in-kind program "continues to face challenges," particularly related to Interior's management and oversight of the program.

House Natural Resources Chairman Nick Rahall, D-W.Va., applauded the decision to terminate the program. "I've been calling for [such an action] for several years," he said. "I think it will end the opportunity for mischief ... and perhaps [provide] a more decent return to American taxpayers."

American Petroleum Institute President Jack Gerard, however, said in a statement that the program is an effective "means of ensuring that the American people receive fair compensation for development of federal resources," providing $6.6 billion in oil and gas deliveries in fiscal 2008.

Gerard said terminating the royalty-in-kind program would increase administrative costs and require much more paperwork to determine the value of oil and gas production.

"We urge Secretary Salazar to carefully weigh the impacts his 'fundamental restricting' of the royalty system could have on U.S. production of oil and gas, American jobs and revenue to the government," Gerard said, adding that his industry is ready to work with the Obama administration to improve the royalty collection system.